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Japan's factory output slumps record 10%

Japan is facing its worst economic crisis since World War II, with factory output dropping 10% in January. The worldwide slowdown has dented demand for its cars, televisions and high-tech goods.

AFP - Japan said Friday that factory output plummeted a record 10 percent last month and consumer spending tumbled, deepening worries about Asia's largest economy as the recession showed no signs of easing.

The new figures underscored the deteriorating health of the economy as demand for Japanese goods has crumbled in the country's major export markets in the United States and Europe, leading to a record drop in exports last month.

The government said factory output, the measure of how many goods manufacturers are making, was down 10 percent month-on-month in January, even worse than what had been a record 9.6 percent fall in December.

Finance Minister Kaoru Yosano, who has warned Japan is facing its worst economic crisis since World War II, said the situation was getting worse.

"The recession is further affecting the real economy," he said.

Japan's reliance on foreign markets to drive its recovery from a decade-long slump has left it particularly exposed to the worldwide slowdown, which has severely dented demand for its cars, televisions and high-tech goods.

Yosano said earlier this month that Japan's economy would not be able to bounce back until the global economic climate improves.

On the domestic front, Japanese household spending tumbled 5.9 percent in January from a year earlier, the government said, with consumers growing more cautious as the recession goes on.

Gross domestic product (GDP) contracted at an annualised pace of 12.7 percent in the last quarter of 2008, the Japanese economy's worst performance in nearly 35 years, and analysts say the downward trend will continue.

"The Japanese economy is expected to worsen in the January-March quarter," said Taro Saito, senior economist at NLI Research Institute.

But he said there were some glimmers of hope, such as the prospect of a rebound in factory output in March. The government forecast production would drop a further 8.3 percent in February but then increase 2.8 percent in March.

"In the April-June quarter we may see the deterioration in the economy slow," Saito said.

The government said core inflation, the measure of how much consumer prices are rising, slowed to zero in January as energy prices fell and domestic demand remained weak, taking the country a step closer to a return to deflation.

The unemployment rate unexpectedly fell to 4.1 percent in January from 4.3 percent in December as the number of people of working age declined because of Japan's ageing population, the government said.

Many housewives have also taken part-time jobs to bring in extra cash during the crisis.

But the overall number of unemployed rose 8.2 percent in January from a year earlier to 2.77 million, following a wave of layoffs by struggling Japanese companies including Sony, Toyota and Pioneer.

"The labour market is showing clearer signs of worsening as the economy deteriorates," said Monex Securities chief economist Naoki Murakami.

The latest grim news comes just days after the government said exports plunged a record 45.7 percent in January.

"We need to take measures to support employment through government spending as soon as possible," Yosano, the finance minister, told reporters.

Japan has announced a series of spending packages to try to stimulate the economy, but huge public debt -- a leftover from efforts to spend its way out of the 1990s recession -- mean it has limited ammunition to fight the crisis.